EXHIBIT A: BACKGROUND PAPER ON THE CANADIAN TAXATION OF GAINS AT DEATH.

The article focuses on the Canadian taxation of capital gains. A Canadian taxpayer must include one-half of capital gains in taxable income, with the taxable portion taxed at the same rates as ordinary income. For the most part, realization and recognition rules are the same as under the U.S. income tax, with the important exception that both transfers at death and inter vivos gifts are taxable events. A gain on the disposition of the taxpayer's principal residence ordinarily is exempt from tax. The law also allows a taxpayer to exclude, on a cumulative lifetime basis, $500,000 of gain realized on the disposition of qualified farm property or qualified small business corporation shares. This is accomplished through a $250,000 capital gains deduction, which offsets the one-half of $500,000 of qualified gain, which otherwise would be subject to tax.